Source: João Amador and Cátia Silva, “The impact of ICT adoption on productivity: Evidence from Portuguese firm-level data,” Working Papers, Banco de Portugal, no. wp202307 (April 2023).
Commentary: In a recent working paper for the Bank of Portugal, João Amador and Cátia Silva analyzed the relationship between information and communication technology (ICT) adoption and firm productivity. The study observed over 30,000 different Portuguese firms between 2004 and 2018. The data on firm-level ICT adoption came from Statistics Portugal, as did the data on firm-level productivity. Specifically, the authors looked at ICT adoption across the dimensions: computer availability, internet connectivity, website adoption, ICT staff, online purchases, and online sales. For the purposes of the study, the variable for ICT adoption by individual firms was calculated using a leave-one-out average for each sector. The productivity data looked at both labor productivity, defined as gross value added per worker, and total factor productivity (TFP).
Using the data for all six dimensions of ICT adoption, the authors created a proxy for measuring overall ICT adoption. After controlling for firm size, firm age, and industry, an increase of one standard deviation in the proxy for overall ICT adoption was associated with a 25 percent increase in TFP and a 58 percent increase in labor productivity. In other words, a one-unit increase in the proxy variable for overall ICT adoption was associated, on average, with a 15 percent increase in TFP and a 35 percent increase in labor productivity. Using the same model for overall adoption, the study also looked at the effects of each of the six ICT components individually. Unsurprisingly, those results also showed a positive associated with productivity. For instance, computer adoption was associated, on average, with a 42 percent increase in TFP and a more than doubling (195 percent) in labor productivity, while internet connectivity was associated, on average, with a 45 percent increase in TFP and a more than doubling (195 percent) in labor productivity. There were also significant positive effects associated with website establishment and with e-commerce. The results serve as further evidence of the crucial role that information technology plays in generating economic growth in the modern economy. As such, the study’s findings also point to the importance of government policies aimed at incentivizing swifter ICT adoption by businesses and for facilitating diffusion of new digital technologies and innovations.
